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Corporate Real Estate Holdings and the Value of the Firm in Korea

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This study investigates the relationship between changes in real estate prices and the value of firms. The main hypothesis is that changes in the value of firms caused by expectations of increasing real estate prices will be smaller in magnitude than these in the value of their real estate holdings since there will be a loss in the value of the firm occasioned by the perception of future growth opportunities forgone. The secondary hypothesis is that the loss in value caused by growth opportunities forgone will be proportional to the amount of debt financing used. The findings using a yearly cross-sectional test during 1987-91 indicate that the proportion of a firm's real estate holdings to its total assets had no significant effect upon the return-on-investment in its stocks. However, the higher the debt ratio of the firm, the lower the coefficient of the real estate holdings, implying that the value loss of the growth opportunities forgone becomes larger as the firm uses more debt. Also these results are not observed in size analysis. Accordingly, a debt effect is regarded to be clearer than a size effect in the impact upon stock returns of the real estate holdings.

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  • Kiwoong Cheong & Chi Soo Kim, 1997. "Corporate Real Estate Holdings and the Value of the Firm in Korea," Journal of Real Estate Research, American Real Estate Society, vol. 13(3), pages 273-296.
    • Handle: RePEc:jre:issued:v:13:n:3:1997:p:273-296
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    Cited by:

    1. Ng, Joe Cho Yiu & Leung, Charles Ka Yui & Chan, Suikang, 2022. "Corporate Real Estate Holding and Stock Returns: International Evidence from Listed Companies," MPRA Paper 111691, University Library of Munich, Germany.
    2. Gary A. Patterson, 2008. "International Real Estate," World Scientific Book Chapters, in: Hung-Gay Fung & Xiaoqing Eleanor Xu & Jot Yau (ed.), Advances In International Investments Traditional and Alternative Approaches, chapter 7, pages 161-182, World Scientific Publishing Co. Pte. Ltd..
    3. Hongyan Du & Yongkai Ma, 2012. "Corporate Real Estate, Capital Structure and Stock Performance: Evidence from China," International Real Estate Review, Global Social Science Institute, vol. 15(1), pages 107-126.
    4. Joe Cho Yiu Ng & Charles Ka Yui Leung & Suikang Chen, 2024. "Corporate Real Estate Holding and Stock Returns: Testing Alternative Theories with International Listed Firms," The Journal of Real Estate Finance and Economics, Springer, vol. 68(1), pages 74-102, January.
    5. Omokolade Akinsomi & Seow Eng Ong & Muhammad Faishal Ibrahim, 2013. "Corporate Real Estate Holdings and Firm Returns of Shariah Compliant Firms," ERES eres2013_99, European Real Estate Society (ERES).

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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